Connecting Markets East & West
Trends in Macro Asset Classes – May 2017
Tom Pelc
Managing Director
Co-Head of Macro Technical Strategy
Fixed Income, Global Markets Europe
“To disbelieve is easy; to scoff is simple, to have faith is harder.”
(Louis L’Amour)
MSCI World Index
STRICTLY PRIVATE AND CONFIDENTIAL
Note: this is not official research views just my personal chart view
© Nomura
Long term liquidity trends
Simple example : 3rd May 2016 – 20k buy in Bunds in the am drove up the market
and cta’s pushed Bunds 100 ticks higher overall…
Homogeneity – money flows in the same direction at the same time – negative impact on liquidity and leads to all
being either buyers or sellers, (esp when we have stress events). CTA’s guilty of driving markets to positional
extremes, look at Bund reaction days after first French election result.
Ticket size decline – some trades become very difficult to execute if not impossible at times.
Bid-offer spread doubled for investment grade bonds, and they trade at much smaller sizes than
before the financial crisis.
Banks depth of assets and ability to absorb shock in the markets has reduced due to balance sheet constraints.
Volatility when seen can lead to an evaporation of liquidity (don’t want to trade if you can’t establish the price).
BANKS ARE NOW LIQUIDITY PROVIDERS
•
You try trading France less than 10 years for example in size…..
•
Risk tolerances are low, nobody wants to warehouse risk, players tend to trade post events not into them
as in the past.
•
Relationship between banks and clients are changing, banks getting more selective on who they want as
clients.
FINANCIAL
MARKETS
1
Japanese investors accumulated net buying of sovereign bonds
(Remember last time round I talked about semi-core unwind)
Japanese investors reversed the historical trend of net-buying OATs as they have been selling bonds Nov 16 –
Feb 17 for at total amount of €19.7bn. The selling accelerated in February reaching an all-time-high of €15.2bn
Japanese investors have historically been net buyers of OATs
80
€bn, £bn
Japanese investors selling of bonds accelerated in February
80
60
60
40
40
20
20
0
0
-20
-20
-40
-40
Germany
UK
Source: BoJ, Nomura
France
Italy
Netherlands
€bn
France
82.1
65.8
France
2
Markets are discounting risks at a faster pace.
The ECB on a monthly EUR60bn bond (public and private sector bonds) buying program, players
waiting for a sniff of tapering.
Now when expected risk events come out, ie. election results etc, (unless black swan events),
markets react very quickly.
For example Euribor June 2018 vs June 2019 moved 8bp in mid April on market speculation on
taper discussions from the ECB.
Euribor M8-M9 (Daily)
FINANCIAL
MARKETS
3
US 10 year yields – Daily chart
You needs something out of consensus to budge the market,
either 1 or 4 hikes to come
2016 hike
2015 1st Fed hike, 2.31%-1.31%,
all time lows
US election result,
Trump wins
All time low in yields
FINANCIAL
MARKETS 4
US 10 Year – monthly chart
2.77%-2.85% the region to break to think about
a rising yield play longer term. Too many
market participants complacent on the rising
yield scenario view for bonds, but still below
the 2.85% region of no taper from a few years
back.
37 month cycle
FINANCIAL
MARKETS
5
US 30s (cash) – 24 v 49 week cycle
FINANCIAL
MARKETS
6
US 2s30s (swaps) – Daily with 138 day cycle
FINANCIAL
MARKETS
7
US 5s (cash) – Monthly with Fibonacci projections
FINANCIAL
MARKETS 8
Multiple techniques with the dominant cyclic behaviour create confident signals
Here is a sample of
Bloomberg data going back
to 1980 on US yield curve
data. Interesting results to
me are above 80%.
In this simple example we
found that calendar weeks
32-34 have 86% chance
(historically) of seeing lower
30 year yields (ie. higher
long bonds in the U.S.)
Forewarned is forearmed.
Weeks 32-34 in 2005 were
Mon 8th Aug -Fri 26th Aug.
US
Day
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
2y
UP
48%
53%
45%
44%
45%
47%
50%
65%
40%
55%
39%
29%
37%
61%
56%
52%
47%
56%
33%
50%
58%
29%
50%
29%
41%
43%
43%
45%
62%
21%
29%
DOWN
52%
47%
55%
56%
55%
53%
50%
35%
60%
45%
61%
71%
63%
39%
44%
48%
53%
44%
67%
50%
42%
71%
50%
71%
59%
57%
57%
55%
38%
79%
71%
5y
UP
52%
60%
45%
28%
55%
47%
47%
58%
40%
42%
39%
32%
37%
55%
56%
52%
44%
53%
43%
47%
58%
32%
50%
39%
38%
43%
43%
48%
55%
25%
29%
DOWN
48%
40%
55%
72%
45%
53%
53%
42%
60%
58%
61%
68%
63%
45%
44%
48%
56%
47%
57%
53%
42%
68%
50%
61%
63%
57%
57%
52%
45%
75%
71%
10y
UP
55%
63%
39%
34%
48%
43%
37%
58%
40%
45%
45%
35%
37%
48%
47%
58%
47%
44%
33%
50%
55%
35%
50%
29%
38%
43%
50%
52%
62%
36%
24%
DOWN
45%
37%
61%
66%
52%
57%
63%
42%
60%
55%
55%
65%
63%
52%
53%
42%
53%
56%
67%
50%
45%
65%
50%
71%
63%
57%
50%
48%
38%
64%
76%
30y
UP
58%
60%
48%
38%
52%
40%
37%
55%
37%
39%
42%
35%
37%
45%
41%
55%
44%
41%
37%
50%
45%
35%
43%
29%
44%
43%
57%
48%
59%
29%
18%
DOWN
42%
40%
52%
63%
48%
60%
63%
45%
63%
61%
58%
65%
63%
55%
59%
45%
56%
59%
63%
50%
55%
65%
57%
71%
56%
57%
43%
52%
41%
71%
82%
Week
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
2y
UP
57%
71%
29%
86%
43%
71%
71%
43%
43%
71%
43%
71%
29%
43%
57%
57%
71%
71%
57%
57%
14%
29%
57%
29%
43%
29%
29%
43%
57%
57%
57%
71%
33%
67%
17%
33%
17%
33%
50%
50%
67%
29%
43%
71%
43%
86%
57%
0%
43%
43%
43%
71%
0%
DOWN
43%
29%
71%
14%
57%
29%
29%
57%
57%
29%
57%
29%
71%
57%
43%
43%
29%
29%
43%
43%
86%
71%
43%
71%
57%
71%
71%
57%
43%
43%
43%
29%
67%
33%
83%
67%
83%
67%
50%
50%
33%
71%
57%
29%
57%
14%
43%
100%
57%
57%
57%
29%
100%
5y
UP
57%
57%
43%
86%
14%
71%
57%
43%
57%
57%
43%
57%
43%
43%
71%
71%
71%
71%
57%
29%
29%
29%
43%
29%
57%
57%
29%
43%
57%
71%
57%
57%
33%
50%
33%
33%
0%
33%
50%
67%
67%
29%
43%
57%
43%
71%
71%
14%
29%
43%
43%
86%
0%
DOWN
43%
43%
57%
14%
86%
29%
43%
57%
43%
43%
57%
43%
57%
57%
29%
29%
29%
29%
43%
71%
71%
71%
57%
71%
43%
43%
71%
57%
43%
29%
43%
43%
67%
50%
67%
67%
100%
67%
50%
33%
33%
71%
57%
43%
57%
29%
29%
86%
71%
57%
57%
14%
100%
10y
UP
67%
44%
44%
39%
17%
50%
61%
50%
61%
56%
44%
50%
50%
33%
50%
56%
61%
61%
39%
39%
33%
33%
39%
33%
44%
39%
50%
44%
44%
61%
56%
44%
33%
33%
33%
22%
33%
50%
39%
56%
61%
50%
50%
50%
33%
50%
50%
22%
39%
44%
44%
44%
67%
HISTORICAL DATA (U.S. Bond markets) going back to 1980
DOWN
33%
56%
56%
61%
83%
50%
39%
50%
39%
44%
56%
50%
50%
67%
50%
44%
39%
39%
61%
61%
67%
67%
61%
67%
56%
61%
50%
56%
56%
39%
44%
56%
67%
67%
67%
78%
67%
50%
61%
44%
39%
50%
50%
50%
67%
50%
50%
78%
61%
56%
56%
56%
33%
30y
UP
57%
29%
43%
43%
14%
29%
43%
50%
63%
50%
63%
63%
50%
50%
63%
63%
63%
75%
63%
13%
38%
63%
50%
38%
50%
50%
63%
50%
50%
75%
38%
13%
14%
14%
43%
43%
29%
29%
57%
57%
57%
43%
43%
57%
29%
43%
71%
29%
29%
29%
57%
57%
100%
DOWN
43%
71%
57%
57%
86%
71%
57%
50%
38%
50%
38%
38%
50%
50%
38%
38%
38%
25%
38%
88%
63%
38%
50%
63%
50%
50%
38%
50%
50%
25%
63%
88%
86%
86%
57%
57%
71%
71%
43%
43%
43%
57%
57%
43%
71%
57%
29%
71%
71%
71%
43%
43%
0%
SEP 05 U.S. T-BONDS (Daily) X Check top/down confirmation
2005
9th of August key day reversal also Yo-sen Tsutsumi candle.
Also look at %R traditional and using a filter highest close to
lowest close of the wave great support.
U.S. 30 YEAR YIELD CHART – confirmation from candles
2005
Weeks 32-34 in U.S. 30 year yields
Fell from 4.64%-4.33%
Note key week reversal in yields in week 32
“Morning doji star”
“Bearish Engulfing” week
Gives confidence for this trade.
2s30s U.S. swaps also 10s30s (curve plays) 2005
2s30s flattens (narrows) from 56.2bp to 39.5bp
In weeks 32-34
The idea is here that a vanilla view can
be extrapolated into other strategy ideas
by default.
Key is to maximise the observation, we expect the long
end to do well so look at exploiting strategies from this..
2005
U.S. FLY’S. using this theme in more complex strategies 2005
2s10s30s Fly weeks (32-34) +13.4 to -0.35
2005
2s5s30s Fly weeks (32-34) -18.2 to -22.5
U.S. 30s – long for August?
Guess what? In August this year a strong bias for lower yields in the
US long end and curve flattening, based on seasonality.
Since 2005 it worked 10/12 times……
Germany 10 year (cash) – Weekly chart & Fibonacci projections
Are we done with negative rates?
FINANCIAL
MARKETS
15
Germany 5 year (cash) – weekly chart
FINANCIAL
MARKETS
16
US vs Germany 10 year (cash) – Daily chart
FINANCIAL
MARKETS
17
UK vs Germany 10 year (cash) – Daily chart
FINANCIAL
MARKETS
18
France 10 year cash – with 14,56,84 week cycles 60 day ma
Mid 2016 witnessed the end of the OMT spread
convergence trend set a few years earlier
14 vs 84 week cycles
FINANCIAL
MARKETS
19
France vs Germany 10 year (cash) – Daily chart
FINANCIAL
MARKETS
20
DXY (weekly) Dollar Index with 19,46,74,148 week cycles
FINANCIAL
MARKETS
21
DXY (Daily) Dollar Index with 39 v 79 days cycle
FINANCIAL
MARKETS
22
Sterling Index (Monthly chart)
Sterling has found long term
support from past big events.
ERM EXIT
Banking crisis
Brexit uncertainty
FINANCIAL
MARKETS
23
Sterling Index (Weekly) with 52 vs 24 week cycles
I suggested last time around a cycle change to buy
Sterling in April 2017.
We shall see now ….
April 2017
FINANCIAL
MARKETS
24
EUR/USD – weekly chart with 14, 28, 112 week cycles
FINANCIAL
MARKETS
25
GBP/USD – 11 vs 33 vs 73 week cycle cycle
1.5275
FINANCIAL
MARKETS
26
EUR/GBP – Weekly chart and Fibonacci swing extensions
extensions
1.618% proj major res
FINANCIAL
MARKETS
27
USD/JPY – with 84 v 164 week cycles
BOJ supportive
FINANCIAL
MARKETS
28
USD/CNH – weekly with 39 week ma
Not sure if it’s technical, but think this grinds higher
FINANCIAL
MARKETS
29
MSCI – World Index - Weekly
Where are the cheap stocks?
2018 target for Saudi Index to be included
FINANCIAL
MARKETS
30
DOW – weekly chart with 23 v 138 week cycles
FINANCIAL
MARKETS
31
S&P500 (cash) – weekly 23 v 69 week cycles
FINANCIAL
MARKETS
32
DAX (cash) - weekly
FINANCIAL
MARKETS
33
Eurostoxx (cash) with, 37 week cycle
FINANCIAL
MARKETS
34
Top 5 gold-producing countries
Peak production was actually back in the 1970’s
China now the
largest producer
Gold ETF’s = 2,297.3t (73.9 moz)
US$96.7bn
NB: Huaan Yifu Gold ETF
22.7t, the first Chinese gold
ETF in the global Top list 15
list.
FINANCIAL
MARKETS
35
Gold – weekly
FINANCIAL
MARKETS
36
Nymex Oil – weekly chart with 36 v 109 week cycles
Structural vs cyclical change…..
FINANCIAL
MARKETS
37
THE DECENNIAL CYCLE BY GANN ON THE STOCK MARKET
1 = Bear Ends, Bull Begins
6 = Bull till Fall, Fast Decline
2 = Minor Bull or Bear Rally
7 = Bear
3 = Bear Begins
4 = Ends Bear, Bull Foundation
5 = Strong Bull
The 10 year cycle continues to repeat over and over, but the greatest
advances and declines occur at the end of the 20 year and 30 year cycles,
and again at the end of the 50 year and 60 year cycles which are stronger
than the others.
8 = Bull
9 = Strong Bull, Sharp Decline in Fall
10 = Bear
1987 - Baby Bear
Dow Jones
1887
1897
1907
1917
1927
1937
1947
1957
1967
1977
1987
1997
2007
Dec3 1886
Sept 10, 1897
Jan 19, 1906
Nov 21, 1916
Oct 3, 1927
Mar 10, 1937
May 29, 1946
Apr 6, 1956
Feb 9, 1966
Sep 21, 1976
Aug 25 1987
Aug 6, 1997
?????? YTD
Apr 2, 1888
Mar 25, 1898
Nov 15, 1907
Dec 19, 1917
Oct 22, 1927
Mar 31, 1938
June 13, 1949
Oct 22, 1957
Oct 7, 1966
Feb 28,1978
Dec4 1987
Nov 12, 1997
(05/10/07)
-20.1%
-24.6%
-48.5%
-40.1%
-10.2%
-49.1%
-24.0%
-19.4%
-25.4%
-26.9%
-35.1%
-13.2%
+12.52% post payrolls
2007 - Mummy Bear
2017 - Daddy Bear?
FINANCIAL
MARKETS
38
DOW JONES INDEX with New Moon dates - Rule of 9 = sell in Oct
After 9 consecutive up-moves sell (ie. 10th New moon = 11th Oct)
July 14
June 14
May 16
Feb 17
Apr 17
Aug 12
Sep 11
First 9 New Moons constructive sessions in 2007
Mar 19
FINANCIAL
MARKETS
39
Table of dates for New and full moons in 2007
New Moons
Full Moons
Jan 19 2007
Jan 03 2007
Feb 17 2007
Feb 02 2007
Mar 19 2007
Mar 03 2007
April 17 2007
Apr 02 2007
May 16 2007
May 02 2007
June 15 2007
Jun 01 2007
Jul 14 2007
Jun 30 2007
Aug 12 2007
Jul 30 2007
Sep 11 2007
Aug 28 2007
Oct 11th 2007
Sep 26 2007
Nov 09 2007
Oct 26 2007
Dec 09 2007
Nov 24 2007
Dec 24 2007
Based on Astrology potential
major top – note was a bearish key day
reversal this day
FINANCIAL
MARKETS
40
FALLS IN YEARS ENDED IN 7 FOR THE DOW JONES
1887 September 19 (-2.24%) & October 12 (-2.29%)
1897 September 21 (-3.95%) & October 12 (-3.90%)
1907 March 14 (-8.29%). Major banking panic October 22
1917 November 01 (-4.16%) & November 08 (-4.21%)
1927 October 8 (-3.65%)
1937 October 18 (-7.75%) Panic/depression
1947 April 14 (-2.95%)
1957 October 21 (-2.48%) Credit crunch
1967 No fall =>2.00% recorded
1977 July 27 (-2.17%)
1987 October 19 (-22.61%) Black Monday
1997 October 27 (-7.18%) Blue Monday
2007 October/Nov = ???? Are we going to get the fall from Oct 11th 2007?
FINANCIAL
MARKETS
41
LUNAR PHASE & THE DOW JONES
Major moves do occur around important Lunar dates
October AOD
falls & Panic
Oct 12, 1887
Oct 12, 1897
Oct 22, 1907
Oct 08, 1927
Oct 18, 1937
Oct 21, 1957
Oct 19, 1987
Oct 27, 1997
Sun
Eo
199
200
208
194
205
208
206
214
Moon Phase Apogee
Eo
Ao
Eo
140
301
017
042
202
064
044
196
112
344
150
204
009
164
252
187
339
347
170
324
127
174
320
175
NN
Eo
136
302
108
082
248
221
001
167
ApNN Ao
241
122
004
122
004
126
126
008
Possible dates for major stock market declines are around the Oct New and Full Moon dates.
FINANCIAL
MARKETS
42
DOW & ANNUAL ONE DAY FALLS UP TO 2007
DJIA AOD Fall
% Fall
Oct 12
Oct 19
Oct 08
Oct 28
Oct 18
Oct 19
Oct 13
Oct 27
-3.95
-4.17
-3.65
-12.83
-7.75
-22.61
-6.91
-7.18
1897
1903
1927
1929
1937
1987
1989
1997
10 > 3.6% falls took place in Oct since 1887.
FINANCIAL
MARKETS
43
DOW DAILY CHART –
New Moon 11th Oct 2007 and a bearish
key day reversal
Fall was 20.5% from Oct 11, 2007- Jan 22, 2008
Full Moon
FINANCIAL
MARKETS
44
Daily chart DOW – and after 20.5% fall even more
FINANCIAL
MARKETS 45
The Decennial cycle and the Dow in 7 ended Years
7 Ended yrs
1887
1897
1907
1917
1927
1937
1947
1957
1967
1977
1987
1997
2007
DJIA High
DJIA Low
Dec 3, 1986
Sep 10, 1897
Jan 19, 1906
Nov 21, 1916
Oct 3, 1927
Mar 10, 1937
May 29, 1946
Apr 6, 1956
Feb 9, 1966
Sep 21, 1976
Aug 25, 1987
Aug 6, 1997
Oct, 11th 2007
Apr 2, 1888
Mar 25, 1898
Nov 15, 1907
Dec 19, 1917
Oct 22, 1927
Mar 31, 1938
Jun 13, 1949
Oct 22, 1957
Oct 7, 1966
Feb 28, 1978
Dec 4, 1987
Nov 12, 1997
Jan 22, 2008
Greater than 20% = bear market
New Moon
% Decline
-20.1%
-24.6%
-48.5%
-40.1%
-10.2%
-49.1%
-24.0%
-19.4%
-25.2%
-26.9%
-35.1%
-13.2%
-20.5%
Full Moon
FINANCIAL
MARKETS
46
Conclusion: get ready October 2017…..
FINANCIAL
MARKETS
47
Original Benner cycle chart from 1875… (Samuel T.Benner)
11 yr cycle corn and pig iron prices with peaks 5&6 years
Cotton prices peak every 11 years
27 yr cycle pig iron prices lows, 11,9,7 yrs
peaks 8,.9,10 yrs 16-18-20 yrs.
FINANCIAL
MARKETS
48
8
2018
10
2010
9
2000
16
18
2011
1995
16
18
2021
20
2003
8
1991
The Benner cycle periods applied by AJ Frost….
FINANCIAL
MARKETS
49
History lesson for the Dow using Benner lows
1913 cycle
1949 cycle
1933 cycle
1967 cycle
FINANCIAL
MARKETS 50
Benner cycle periods and the Dow
1987 cycle
2003 cycle
FINANCIAL
MARKETS 51
Benner cycle – interesting for picking major long term bottoms.
What’s interesting is:
1913 – June was a decent low, and Dec 1914 proved to be a major low..
20
1933 – Feb big low, but the major low a bit earlier July 1932
16
1949 – June was a major low
18
1967 – Oct 1966 was a major low
20
1987 – Oct 1986 major low
16
2003 – Oct 2002 was the major low, but March 2003 came close to testing it.
18 (watch out end of 2017-2021 rough times)
2021 – fill your boots after 4 tough years???
FINANCIAL
MARKETS 52
Conclusion – bear markets are different for bonds vs stocks
The US bond market has never experienced greater than a -20% return.
The worst 12 month return for US stocks was -67.6% 1932.
Best performing asset class this century = Gold
Later this year around August watch out for some of the major trends to fatigue
– namely equity moves to weaken, and bond weakness to abate….
Food for thought for the next 40 years…
It will be the biggest consumer boom in the history of modern mankind…
China, India, Latin America, Africa, parts of the Middle East will be very different to how they look now.
FINANCIAL
MARKETS
53
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